When it comes to investing, there are differing opinions. Some theories evolve, while others remain relevant. Renowned investor Bill Miller identified three advantages in investing: informational, analytical, and psychological, which continue to ring true.

Informational

Having meaningful information that the market does not, which rarely exists nowadays, given information is disseminated instantaneously. Today, an informational advantage would often be insider trading – which is illegal. 

Analytical

When data is studied or manipulated in a way that leads to insights others have yet to find. An expert tax accountant may have proprietary insights into how new regulations will affect a company’s taxes (and ultimately cash flows) going forward, or an engineer may have a better understanding of how a new emerging technology will shape the future of an industry. Artificial intelligence and machine learning may yield analytical advantages to early adopters, just as earlier-era quantitative investment processes did. Analytical advantages can lead to a better estimate of an asset’s value.

Psychological

The ability to overcome behavioural biases; over-confidence, anchoring, groupthink, etc. It is easy to get drawn into consensus psychology and follow the crowd, especially when others are making a lot of money (i.e. fear of missing out). However, following the crowd during the dot-com frenzy, the U.S. housing boom, and the meme stock mania of 2021 all led to crippling losses in the following years – the consensus can be wrong. Miller believes a psychological advantage is the most enduring type of advantage.

Miller suggests combining analytical and psychological advantages when selecting investments. First Avenue follows this approach. For example, we recently invested more in Brookfield Corporation, one of the largest global owners of office and retail properties. 

Brookfield owns trophy, class A office towers in global centres of commerce that are super-cluster magnets for different talent sectors such as finance in Toronto and New York, energy in Calgary, media in LA, etc. We don’t expect that to change. The remarkable and swift recovery from the events of 9/11 powerfully demonstrated the resilience of New York, for instance, which Brookfield capitalized upon. Although some businesses in the future may adopt variations of hybrid work environments, these mega-cities will continue to grow as they serve as engines for economic growth in their respective nations. Entrepreneurialism and capitalism drive extensive growth in economies of developed markets, and these businesses will require space. Moreover, buying the shares of Brookfield with essentially zero value attributed to the office properties allows for a margin of safety to, as an example, tear down and rebuild or repurpose buildings from office to residential or even multi-use properties catering to eat, shop, work, live and play.

The current valuation improves risk/reward despite news headlines. We believe that investors who successfully deploy the psychological advantage of patience will be rewarded in the long term.